Today is credit card day in Washington DC, and all the politicians are appearing in the media taking swings at the evil credit card issuers.
Chuck Schmer and Barney Frank have gone so far as to ask Ben Bernanke to implement an “emergency rate freeze” on credit cards. We really don’t know what the emergency is.
Now generally we’re against price controls and you’d think that we’d have learned the lesson from the housing bubble: it’s artificially low interest rates that are the big problem.
Our friend at Zero Hedge thinks Frank has jumped in his Dolorean back to a 2002 world.
Other will say that if you cap credit card rates, then credit card lending will just freeze up. The poor will get shut out and won’t have their precious cards! Quelle horror!
Well, you know what, that’s kinda the point. Or at least it should be the point. Who the hell knows what Frank thinks the point is.
What we need is less of a debt culture not more of one. Getting the poor off the 30% credit card treadmill woudln’t be the end of the world. Now granted, we’re all for voluntary exchange between two consenting adults. And unlike the mess that was caused by too-cheap money, it’s not clear that the credit card industry threatens to collapse the whole system.
But if the upshot from a clampdown on credit was a limitation of credit to only those who are legitimately credit worthy, we’d survive.
Yves Smith at Naked Capitalism recently plucked a great quote from Wealth of Nations that perfectly sums up the case for anti-usury regulations:
The legal rate…ought not be much above the lowest market rate. If the legal rate of interest in Great Britain, for example, was fixed so high as eight or 10 per cent, the greater part of the money which was to be lent would be lent to prodigals and projectors [promoters of fraudulent schemes], who alone would be willing to give this high interest….A great part of the capital of the country would thus be kept out of the hands which were most likely to make a profitable and advantageous use of it, and thrown into those which were most likely to waste and destroy it.
When the legal rate of interest, on the contrary is fixed but a very little above the lowest market rate, sober people are universally preferred, as borrowers, to prodigals and projectors. The person who lends money gets nearly as much interest from the former as he dares to take from the latter, and his money is much safer in the hands of the one set of people than in those of the other. A great part of the capital of the country is thus thrown in the hands in which it is most likely to be employed with advantage.